Silver: Gold's Stepchild

Specifications, Description, & Performance 

Silver is a white, lustrous metallic element that conducts heat and electricity better than any other metal. Silver is the most malleable and ductile of all metals, apart from gold. Silver melts at about 962 degrees Celsius and boils at about 2212 degrees Celsius. Silver is not very chemically active, although tarnishing occurs when sulfur and sulfides attack silver, forming silver sulfide on the surface of the metal. Because silver is too soft in its pure form, a hardening agent, usually copper, is mixed into the silver. Copper is generally used as the hardening agent because it does not discolor the silver.

The world's largest mine producers in 2020 were Mexico with 22.4% of world production, Peru with 13.6%, China with 12.8%, Russia with 7.2%, and Poland, Chile, and Australia, each with 5.2%.

Source: CRB Yearbook – Barchart 

During the past three months, silver has declined 2% after finding overhead supply, at $24.50ish, and stalling the seasonal rally. The longer-term 52-week performance was disappointing at -10%. Silver's bright spot was the seasonal rally from $17.40 in September to $24.77 in January, a 42% return. 

Source: Barchart 

Family Picture of Gold & Silver 

Source: Barchart 

I want you to know that getting silver to stand still long enough for this family photo was challenging. Silver (black bars) prices bottomed in September, while gold (red prices) prices bottomed later in November. Gold usually gets all the acclamations in the metals markets, but silver wanted nothing to do with that and trended to higher prices causing gold to chase its stepchild, silver. As silver prices came into overhead supply at the end of 2022, silver prices began going sideways. At the same time, gold made new highs, and realized silver was not with the family. Immediately gold began to chase silver lower.  

Recent Article on Silver 

In December, I wrote an article for Barchart titled "Hi-Ho, Silver! Away!" The article described how silver had rallied into significant supply at the $24.50 area and could begin a correction (see chart from the article below.) 

Below that resistance area was support at approximately $22.00ish. Currently, silver is trading in this vicinity. If the weekly trend is to stay intact, silver needs to remain above $20.50ish basis a weekly close.

The Commitment of Traders (COT) Report

Unfortunately, the Commodity Futures Trading Commission (CFTC), which produces the weekly COT report, has had third-party vendor problems and has yet to release COT reports for two weeks. The last update was on January 24, 2023. 

Seasonality 

Source: Moore Research Center, Inc. (MRCI) 

MRCI has extensively researched the cash silver market and found that February is historically a solid up-trending month for silver. Silver peaks near March and trends down for several months like gold. 

With prices currently trading at weekly support, the anticipation of a strong February rally, and inflation still excessively high, silver could begin a rally soon, requiring gold to come after it. Oh, those out-of-control children. 

Products to Participate in Silver 

There are multiple products available to participate in the silver market. 

Buying the physical metal is an option. Silver is less liquid than gold, and selling might be more challenging due to the large bid/ask spread in the physical metals markets. 

Equity traders can use an exchange-traded fund (ETF) (SLV) to trade silver. SLV follows the silver price. Other silver-related ETFs might track miners of silver, which may only sometimes track silver prices as closely as SLV.   

Futures traders can trade the standard-size silver contract (SI). Beware, this contract is for 5,000 ounces of silver and can be very volatile and costly to trade. The CMEGroup does offer a micro silver contract (Barchart symbol SO, CME symbol SIL). The contract size is 1,000 ounces, and the capital requirements are 1/5 of the standard-size contract. 

As always, before trading options, futures, or equities, seeking training first is recommended.

Summary

We can hope that gold finds a way of keeping silver in line, but reviewing the comparison chart above, we can see that silver has historically been the market to run away from gold, resulting in gold prices changing direction. 

With multiple factors supporting higher metals prices, traders/investors need to have a strategy to manage their trades and risk. Beware that higher interest rates result in strong headwinds for advancing gold prices. I addressed this in another article for Barchart titled "Gold: "I Bought The First Break, I Bought The Second Break, And I Was The Third Break!" In the article, you will find my opinion on where interest rates and gold may simultaneously begin a gold rally. 

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